Short-term lets: more than just a holiday
By CHL Mortgages
The coronavirus pandemic certainly played a major role in the UK 'staycation' boom which resulted in demand, and therefore prices, rapidly escalate for holiday accommodation in tourist hotspots round the UK. Rising prices which are still proving highly attractive for people with second homes and for landlords looking to diversify their portfolios and maximise yields.
Demand for holiday lets from a rental and ownership perspective continues at pace. Data released in April by Suffolk Building Society outlined that 17% of adults in the UK contemplated buying a holiday let property during the pandemic. It was suggested that younger people led the trend, with those aged 18-34 most likely to have thought about buying a holiday let property within the past 24 months. Two urban areas had the highest number of prospective landlords, with those living closest to London at 32%, followed by people in the West Midlands (19%).
In addition, according to its inaugural holiday letting report, Sykes Holiday Cottages said it had experienced a 78% increase in owner enquiries up to April 2022, when compared to the same period in 2020. This outlined that 39% of enquiries in 2022 had been from those completely new to holiday letting, whilst 9% were experienced holiday let owners. Adding that a quarter of UK holiday home owners started letting during the pandemic, whilst 9% have been letting for 10 or more years. A quarter also used to run their property as a long-term let.
The top reasons to buy a short-term let included supplementing existing income and greater flexibility. In the longer term, the report said that it expected demand to return to larger cities, as people had opted for costal or rural breaks during the pandemic. It added that the demographics were also shifting, with younger guests working remotely and travelling for longer periods, which it said would “increasingly drive the market forward”.
This is certainly a shift away from the more traditional BTL market for many landlords and the appeal of much higher potential for yield over a shorter period of time continues to make this an attractive option for investors.
While the ongoing popularity of UK-based breaks has been the driving force behind the rise to prominence of short-term lets, this is certainly not the only factor. Short-term let’s offer access to flexible accommodation which can be a viable option for those who may be waiting for their new home to be constructed or refurbished after a previous sale, for contactors embarking upon projects away from home or for a variety of other reasons.
When focusing on the approach, criteria and policies regarding these types of properties, these will differ from lender to lender and this is factor which advisers need to be aware of and be fully versed on.
Here at CHL Mortgages, we define short-term let as, Holiday Lettings and Serviced Apartments. Short-term lets are acceptable where the valuer confirms a few specific points, including the ICR calculation fits on the market rent based on an AST and there is demand for the property from both owner occupier and investor buyers.
Not all lenders have the underwriting capacity or appetite to offer short-term lets and these largely remain the domain of specialist lenders and building societies who incorporate a manual underwriting process and a flexible approach. As a lender, we recently took the decision to enter the short-term let marketplace on the back of adviser feedback with the introduction of a new five-year fixed product range up to 75% LTV. This includes the provision of dual fee bands to help provide landlords with more control over upfront costs and the response to this launch has been overwhelmingly positive amongst our ever-growing band of intermediary partners.
At this juncture, it’s prudent to point out just how important the advice process is for such product types. In addition, landlords also need to be realistic about the rents they can expect to achieve as the highs of the past two years will not necessarily be sustainable over the longer term, as the demand for international travel will inevitably grow. Although if you’ve seen and read some of the stories emerging from airports across the country in recent weeks, then there are even more reasons for people to stay within the UK borders over the summer months and beyond.
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